Most consumers are not switching banks because they are happy with their bank and the incentives on offer are not high enough, according to a new study.
Consumer group Fairer Finance says that the average consumer would need to be offered a switching bonus of nearly £500 before they would consider switching banks.
Recent figures from the Competition and Markets Authority (CMA) show that on average bank switching remains relatively low overall, with around 3% of customers changing each year.
The relatively high levels of satisfaction expressed by a majority of customers is likely to be a significant cause of the low level of switching in the market, Fairer Finance says.
The survey of over 3,000 people found that the number one reason people did not switch bank was because they were happy (49%) with their current bank, followed closely by those who have never had a problem with their bank (45%).
A significant percentage have also not switched because of the perceived hassle (24%) or fear that something will go wrong (10%).
The consumer group also says that low levels of switching may also be explained by the banking system’s complex pricing structures, and the difficulty of seeing how much could be saved by switching.
While many people feel they are getting a good deal from their bank, people who use overdraft services could save significant amounts of money by switching.
According to the CMA, customers who use a planned overdraft between eight and 14 days a month could on average save £180 by switching.
Meanwhile, those who use an unarranged overdraft eight days or more a month could save over £540 by switching.
A number of mechanisms have been put in place to make it easier for customers to switch and fuel competition.
The seven day switching service was launched in 2013 and has reduced the length of time it takes to change banks as well as removing much of the hassle, with payments such as direct debits and salaries automatically moved over to the new account.
However, James Daley, managing director of Fairer Finance, says that despite the changes it is still too difficult for customers to switch banks.
He says: “Latest figures from the current account switching service show that the number of switchers is now in decline again - and in spite of all the considerable efforts to stimulate competition in this sector, very little is changing.
"We believe customers should have one single account number that they can carry with them from bank to bank. Introduction of portable account numbers would make switching bank as easy as switching energy provider or mobile phone operator.
“Until that happens, we're not going to see the kind of switching levels that you'd associate with a healthy and competitive market."
Best current account switching rewards
RBS is offering a cash bonus of £175 if you switch to it Reward account as well as money back on bills. You will get a £125 plus another £50 if you stay until 30 June 2020 as well as 2% cashback on most bills.
With the HSBC Advance Bank Account you will get a hefty £175 for switching. You will have to pay in £1,750 each month though.
If you decide to switch to First Direct you will get £100 if you pay in £1,000 within the first three months. The bonus will be paid into your account 28 days after opening it.
Halifax will pay anyone who switches to its current account a £50 bonus, plus £85 if you stay for six months and pay in £1,500 a month. You'll also get a £2 reward each month you pay in £750 or more, pay out at least two different direct debits and stay in credit.
M&S Bank is offering a £100 M&S gift card plus an additional £80 after 12 months if you choose to switch. The deal is also available on the £10-a-month M&S Bank Premium Current Account.
This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.